As covid-19 causes a drag on industry -- both in vape cartridge production and canceled conferences -- some areas of business are rolling along.

The coronavirus is having an impact on the cannabis industry. From factories in China that produce vape pens to canceled events, the virus is touching an industry that has billed itself as recession proof. Perhaps sales won't be affected by the virus and cannabis indeed is recession proof, but the virus is still infecting the industry.

Vape Manufacturing Returning

Vape-pen producer Jupiter Research said it was back online following the Chinese New Year and minor delays associated with the Covid-19. The virus caused many parts of the country to impose strict quarantines that resulted in several factories shutting down temporarily as employees stayed home. Almost all of the vape pen hardware is made in China, with the empty cartridges shipped to the United States to be filled.

"We are proud to report that manufacturing lines have been open since February 17, 2020, and can confirm our first post-Chinese New Year ocean and air shipments are en route," said Mark Scatterday, CEO of TILT Holdings (TILT) and founder and CEO of Jupiter Research.

Altitude Investment Management Partner Roderick Stephan said that at the present time, 40% to 90% of manufacturing is back online depending upon which province you are looking at. "Guangdong is where most cannabis products appear to be made," he added, noting that it's about 60% to 90% back online.

Stephan also noted that the main supply chain issues were mostly centered around packaging and labeling.

"Most of it comes from China but luckily, not Wuhan," he said.

Still, he noted the disruptions were just another added stress on the cannabis industry. Massive disruption due to consolidations followed by the Chinese New Year have challenged even the best companies.

"A lot of cannabis companies use a single source and they don't have multi suppliers like large consumer-packaged goods companies. The companies are smaller and have less cash and less scale," said Stephan.

He noted that any more hiccups could hurt the industry. "Canada 2.0 is increasing orders and its harder to fill those demands. You can't sell products without the packages that meet regulations," he added.

Steady Sales

While cannabis producers are advising that consumers not share products, so far sales don't seem to be impacted. Planet 13 Holdings (PLNHF) located in Las Vegas is one of the few retailers that reports its monthly retail sales. The virus was first reported in January, but really gained attention during February and March. Planet 13 said that it served an average of 2,200 customers per day in February, while maintaining an average ticket of roughly $100.00.

"The addition of Phase II - the customer-facing production facility, restaurant, and event space - along with increased awareness of the SuperStore has driven year over year same store growth of ~48% through the first two months of 2020," said the company in a statement.

The cannabis industry has argued that it is recession proof, like cigarettes and alcohol. The idea is that these are products that consumers will keep purchasing while opting to forego other items like clothing or other nonessential items. While the country isn't in a recession, empty malls and employees working from home has a recessionary quality to it. It may even be that people stuck at home may want to buy cannabis as they are deprived of socializing in public places.

Canceled Conferences

Cannabis conferences have become a way for companies to do business and network. Since this isn't a traditional industry, the event calendar has become very important to the growing industry. Events like the Natural Products Expo West, which included a number of CBD exhibitors, postponed its 2020 event in Anaheim, California. The event planner noted that a huge number of registered exhibitors and attendees announced plans to drop out because of coronavirus concerns. But numerous companies had wanted the event to remain on the calendar due to their financial commitments to the show.

CannaTech, was scheduled to begin March 30 in Tel Aviv, Israel, but that organization announced plans to postpone its event until mid-June. The company's organizers said that recommendations from the Israeli Ministry of Health, the World Health Organization and the Centers for Disease Control and Prevention caused it to change the date. South by Southwest - or SXSW - was running a cannabis track for the second year and that event, which brings in over 100,000 attendees was canceled. Many of the small cannabis industry participants are unable to get airline costs or hotel expenses refunded.

Hall of Flowers had insisted it was going forward with its plans, but this event also capitulated and canceled. Hall of Flowers has quickly become an important venue for brands to meet with distributors and dispensary owners. Losing this opportunity to sign up new business could make or break many small cannabis producers. The latest casualty is now the New England Cannabis Network, called NECann. This event was planned for Boston on March 20-22 and it too is being postponed.

Not Dead Yet

The virus has certainly impacted the small businesses of cannabis, but if sales continue to climb, the industry could prove its resiliency. Canada 2.0 is slowly growing as more stores open and consumers' demands are met. Michigan and Illinois have both shown themselves to have strong consumer demand willing to pay high prices for product as the inventory channels begin to fill. It is an industry accustomed to challenges and this is just one more hurdle to jump.

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At the time of publication, Borchardt had no positions in the securities mentioned.

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